Currency Volatility and Global Technological Innovation

Mark Taylor, Po-Hsuan Hsu, Zigan Wang and Qi Xu

No 16611, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We investigate the real effects of foreign exchange (FX) volatility on technological innovation. Using a 32-market, three-decade sample, we show that heightened FX volatility associates with significantly lower firm-level R&D expenditures, patents granted, and forward citations. The negative FX volatility-innovation relation can be attributed to precautionary savings needs and trade slowdown. The relationship is stronger for firms with financial constraints, with the use of foreign debt, and in more open economies; it is weaker for firms with derivatives hedging, with higher sales, and in countries with better financial development. We also use FX regime changes and the collapse of the European Exchange Rate Mechanism to support a causal interpretation

Keywords: Foreign exchange volatility; Technological innovation; Patents; R&d (search for similar items in EconPapers)
JEL-codes: F31 G32 O30 (search for similar items in EconPapers)
Date: 2021-10
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